羅斯百貨 (ROST) 2005 Q4 法說會逐字稿

Good morning.

Welcome to the Ross Stores fourth-quarter and fiscal 2005 earnings release conference call.

All lines have been placed on mute to prevent any background noise.

The call will begin with prepared comments by Michael Balmuth, Vice Chairman, President and Chief Executive Officer, followed by a question-and-answer session. (OPERATOR INSTRUCTIONS).

As a reminder, today's call is being recorded.

At this time I would like to turn the call over to Michael Balmuth, Vice Chairman, President and Chief Executive Officer.

Good morning.

Joining me on our call today are Norman Ferber, Chairman of the Board;

Gary Cribb, Executive Vice President and Chief Operations Officer;

Michael O’Sullivan, Executive Vice President and Chief Administrative Officer;

John Call, Senior Vice President and Chief Financial Officer; and Katie Loughnot, Vice President of Investor Relations.

We'll begin our call today with a brief review of our fourth-quarter and fiscal 2005 results followed by a discussion of our longer range plans and objectives.

Afterwards we'll be happy to respond to any questions you may have.

Before we begin I want to note that our comments on this call will contain forward-looking statements regarding expectations about future growth and financial results and other matters that are based on management's current forecast of aspects of the Company's future business.

These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from historical results or current expectations.

These risk factors are detailed without limitation in today's press release and the Company's SEC filings including the 2004 Form 10-K, the 2005 Form 10-Q's and the 2005 and 2006 Form 8-K's.

Today we reported that earnings per share for the 13 weeks ended January 28, 2006 rose 40% to $0.49 compared to $0.35 for the 13 weeks ended January 29, 2005.

Net earnings for the fourth quarter ended January 28, 2006 increased 37% to $71 million compared to $51.8 million for the 13 weeks ended January 29, 2005.

For the fiscal 2005 year ended January 28, 2006 net earnings totaled $199.6 million compared to net earnings of $169.9 million for the prior year.

Earnings per share rose 14% to $1.36 compared to $1.19 for fiscal 2004 before the non-cash pretax charge of approximately $15.8 million or $0.06 per share related to the write-down of our former headquarters and distribution center in Newark, California.

Sales for the fourth quarter ended January 28, 2006 increased 16% to $1.4 billion with comparable store sales up 6% over the prior year.

For the fiscal 2005 year sales increased 17% to $4.9 billion with comparable store sales up 6% over the prior year.

Geographic trends were consistent during the year as the Southwest was the strongest region for both the fourth quarter and fiscal 2005.

In our most important state, California, comparable store sales increased 4% for both the fourth quarter and the year.

Juniors and shoes were the top performing merchandise departments for both the fourth quarter and the year.

Same-store sales for these businesses were consistently up in the midteens to low 20% range throughout the year.

We are pleased with the solid earnings growth we realized in the fourth quarter of 2005 which was driven by a combination of strong sales gains and a 115 basis point expansion in operating margin.

Gross profit margin for the quarter rose about 185 basis points partially offset by an approximate 70 basis point increase in selling, general and administrative expenses mainly related to higher incentive plan costs.

For the full fiscal 2005 year earnings benefited from a solid rebound in sales partially offset by a combination of higher than expected mark downs related to transitional systems and distribution issues earlier in the year, higher expenses related to inventory shortage in the second half of 2005, and higher incentive plan and information technology costs compared to fiscal 2004.

As we ended the fourth quarter and fiscal 2005 average in-store inventories were relatively flat to the prior year on a comparable store basis.

Total consolidated inventories increased 10% driven mainly by the growth in new stores partially offset by lower levels of pack away inventory.

Pack away was about 41% of total inventories at the end of January 2006 compared to 43% at the same time last year.

Sales to date at dd's DISCOUNTS have been encouraging.

Our new concept, which we launched in the back half of 2004, offers a wide array of fashions and accessories for the family and the home all at every day discounts of 20 to 70% off moderate department store and national discount store prices.

During 2006 we plan to open another six locations for a total of about 26 dd's DISCOUNTS stores throughout California.

Our focus this year will be on working to improve the economics of this lower price point business model.

Looking ahead, despite the challenges we have faced and addressed over the past two years, both our balance sheet and cash flow remain solid and healthy as we enter 2006.

Operating cash flow during 2005 continued to provide the resources to fund capital investments in new store growth and infrastructure.

During fiscal 2005 $176 million in capital expenditures supported the addition of 75 net new Ross locations; ten dd’s DISCOUNTS stores; the purchase of a new warehouse facility in Marino Valley, California and other various information technology and infrastructure investments.

We currently operate 734 locations in 26 states.

We also continue to enhance stockholder value through our share repurchase and dividend programs.

During 2005 we completed the two-year $350 million stock repurchase program authorized by our Board of Directors in 2004, buying back a total of 6.4 million shares of common stock in 2005 for an aggregate purchase of $175 million.

We ended the most recent year with a total of 144.1 million shares of common stock outstanding.

In addition, in November 2005 our Board of Directors authorized a new $400 million two-year stock repurchase program for 2006 and 2007 and approved a 20% increase in our quarterly cash dividend.

Looking ahead, although the external retail and economic climate remains challenging, our recent progress and improved sales momentum and merchandise gross margin trends keep us optimistic about our prospects for improved sales productivity and profitability in 2006 and beyond.

Earlier this month we reported that same-store sales in February grew 6% over the prior year which was lightly ahead of our expectation.

Business has continued to perform slightly ahead of plan in March with same-store sales up 5% month to date.

As a result, we remain on track to meet or slightly exceed our forecast for comparable store gains of 1 to 2% in March.

Remember that our sales plans reflect the holiday calendar shift with Easter moving from the last Sunday in March last year to the third Sunday in April this year.

As a result we also continue to project same-store sales gains of 7 to 8% in April.

We expect continued pressure on operating margin and earnings during the first half of 2006 from higher shrink and freight costs compared to the prior year until we anniversary the charge for shortages that we took in the third quarter of 2005.

As a result, we are planning earnings per share growth before stock option expenses to be in the low double digit to high teen range compared to the comparable prior year periods in 2005 for both the first and second quarters.

For the 13 weeks ended April 29, 2006 we continue to project earnings per share in the range of $0.37 to $0.39 inclusive of projected non-cash charges for stock option expense equivalent to about $0.01 to $0.02 per share for the period.

Excluding the new stock option expenses, projected first-quarter earnings per share are $0.38 to $0.40 or 12 to 18% growth over the $.34 in earnings per share for the 13 weeks ended April 30, 2005.

Same-store sales for the second quarter are forecast to increase 3 to 4% and earnings per share for the 13 weeks ending July 29, 2006 are projected to be in the range of $0.30 to $0.32 which includes the impact of about $0.01 to $0.02 per share of stock option expense.

Before stock option expense earnings per share in the second quarter are forecast to increase 10 to 17% to $0.32 to $0.34 compared to $0.29 in the prior year.

For the second half of 2006 we are planning same-store sales gains of 3 to 4% in the third quarter and 2 to 3% in the fourth quarter.

We look for some continued improvement in our earnings per share growth rate in the third quarter, but are planning significantly larger percentage increases in EPS during the fourth quarter.

The 53rd week alone is forecast to add about $0.06 to $0.07 to earnings per share on top of the normal earnings growth one would expect during that period.

As a result we are reiterating our forecasted sales and earnings per share growth for the year.

For the 52 weeks ending January 27, 2007 we continue to project same-store sales gains of 3 to 4% on top of a 6% increase in fiscal 2005.

For the full 2006 fiscal year or the 53 weeks ending February 3, 2007 we project that earnings per share will be in the range of $1.54 to $1.64 inclusive of projected non-cash charges for stock option expense equivalent to about $0.06 per share for the period.

Excluding stock option expense our projected earnings per share range for the 53 week fiscal year in 2006 remains unchanged at $1.60 to $1.70.

Now I'd like to review some of our longer range plans.

As noted in our last conference call in November, we have been focusing on addressing two key objectives -- strengthening our performance in the newer markets we have entered over the past few years, especially the Southeast, and increasing operating margins and overall returns.

Our first major new market expansion in over a decade began in 2001 when we entered the Southeast region.

By the end of 2005 we operated 106 locations in numerous local markets throughout Georgia, North Carolina, South Carolina, Alabama, Mississippi, Louisiana and Tennessee.

We know that we need to do a better job of addressing customer preferences at a more local level to strengthen the current regional planning processes in place today.

As a result, during 2006 and 2007 we will be developing new tools and system enhancements to help us better understand different customer wants and needs at a more local level.

We believe these changes will strengthen our ability over time to plan, buy and allocate merchandise more effectively, not only in the Southeast but also in other markets like the mid-Atlantic where sales productivity and store contribution are below average.

As we concentrate on rolling out these new micro merchandising initiatives over the next couple of years we expect to focus store growth only in the regions we already serve.

We believe this more targeted expansion program will enhance our ability to realize gradually improving store sales productivity and profitability across all regions, enabling us to balance growth with gradual improvement in operating margins and overall returns.

As a result we continue to plan total net unit growth of about 8% in fiscal 2006 consisting of approximately 55 Ross and 6 dd's stores all in existing regions.

In conclusion, we are pleased with the progress we made during 2005 in executing our core strategy of delivering name brand bargains to customers as evidenced by our recent trend of solid gains in comparable store sales.

In addition, although we faced some transitional short-term issues that impacted profitability, we were still able to deliver respectable earnings growth in 2005, a testament to the strength and resilience of our business model.

During 2006 we plan to remain focused on what we believe are the key initiatives that will contribute to ongoing improvement over the next few years in both sales and profitability -- developing tools and processes to improve our ability over time to plan; buy and allocate merchandise at a more local level with the goal of improving the quality of the name brand bargains we offer in all markets; working to realize ongoing improvement in distribution productivity and expense trends; and staying diligent in our efforts to get shortage results back to more normal levels.

We believe these initiatives will result in a gradual improvement in store sales productivity and operating margin, enhancing our ability to realize our target of 15 to 20% earnings per share growth over the next several years.

At this point we'd like to open up the call and respond to any questions you may have.

(OPERATOR INSTRUCTIONS).

Jeff Black, Lehman Brothers.

Thank you very much.

Congratulations on a good quarter.

I guess, Michael, I had a question about the real estate strategy, specifically as it relates to your analysis of new markets.

And do we think, or to what extent do we think there could be real estate issues involved in terms of the sites you've selected?

Where are the ideal locations for Ross?

Have we moved somewhat out of that ideal location and demographic in the Southeast, or do you think that's just not part of the issue and it's all merchandising?

Thanks.

We've looked at this very closely and we're very confident that the issues are not real estate; they're not anything else but merchandise.

And we've assessed it, spent a lot of time on it and we have an action plan to work on it over the next -- to resolve it over the next several years.

Okay, great.

That's it for me.

Thanks.

Jeff Klinefelter, Piper Jaffray.

Just a couple quick questions.

One on the changing landscape here with respect to department stores and other major chains in terms of consolidation.

Can you talk at all about what sort of opportunity this presents short-term this year as those stores consolidate, but also more medium-term in terms of the types of brands that you'll have access to and potentially even be able to partner up with a little bit more directly than you would have historically?

Then I have one follow-up on the store shrink.

Obviously the landscape is changing.

As we look at this year on a short-term basis there's a bit of a negative as Federated closes some locations and runs going out of business sales and they started that in January and continued it in the first quarter.

So there's a negative.

The positive is that there has been inventory as May Company resources, which many of those also were Federated resources, have additional product.

Additionally, it creates a situation where I think our sector becomes more important to the marketplace.

And so there aren't specific vendors that I would discuss, but I'd say across the board it enhances the relationships that our sector would have with the marketplace.

Okay, great.

And just as a quick follow-up, store shrink you recognized as an issue obviously after that last physical inventory and I know you're planning to do another in May. any initiatives or anything you can talk about that you have been pursuing or implementing to improve that in between these two physical inventories to give us a sense for how much it's improved?

Jeff, this is John.

Relative to when we'll take the next physical inventory, it will be the third quarter, not the second quarter.

So we'll take a full store inventory again in the third quarter this year.

Jeff, it's Gary.

Relative to the measures we've taken there's numerous measures.

First of all, we believe that some of the shrink was related to our systems issue and distribution issues that we've had in the past and we believe that that's all behind us today.

Relative to the in-store shrink, we have implemented a number of measures focused on both internal and external shortage and are implementing these initiatives focused on an in-store level, so a store-by-store basis.

And is there any way that you've been able to measure to date -- I know it's early, but have you been able to measure any improvements?

We believe that we're focused in the right areas and are seeing results accordingly, but we really won't be able to tell until we take the full store inventory.

Okay, so there will be no count until sometime in the third quarter, correct?

That's correct.

Thank you.

Kimberly Greenberger, Citigroup.

John, I was hoping you could help us understand a little bit more about the gross margin improvement in the quarter, the 185 basis points.

If you could talk about the contribution from improved merchandise margin as opposed to occupancy leverage and distribution center expenses that would be helpful.

And then if you could talk about your current distribution center capacity, you've got the three DCs plus the warehouse now.

How do you feel you're positioned?

Do you in fact have some excess capacity and when do you think you might be in a position to utilize the full resources of distribution that you have at this point?

And lastly, if you could just talk about engineered standards, if they've been finalized?

Are they being rolled out?

Just a status update on that, that would be helpful.

Thanks.

Sure, Kimberly, I'll take the first part of that question.

As you mentioned, gross margin for the quarter was up 185 basis points which benefited from a 100 basis points improvement in merchandise gross margin inclusive of about 70 basis points of higher shrink and freight.

Distribution costs improved by about 30 basis points and we had about 55 basis points of leverage in occupancy and buying.

Kimberly, Gary.

Relative to the DCs, we really now have four DCs.

And you mentioned the warehouse that we have in Moreno Valley.

But we believe we have enough capacity to take us really beyond 2007 and any future plans will really depend on what growth looks like after 2007.

And an update on the engineered standards?

Engineered standards are going exactly as we planned.

We completed the rollout in January.

We're seeing the gradual improvement that we've planned all along and anticipate over the next couple years we'll continue to see that same type of improvement.

Great, thank you.

Paul Lejuez, Credit Suisse.

Could you just remind us for '05, the gross margin looked flattish to last year, but can you give the pieces of the puzzle?

How we got there with the merchandise margin, the DC and the leverage?

And then can you also talk about if there are any specific challenges that you're currently facing in the DCs?

We know that you've had some trouble leveraging those costs.

Are there any particular issues that you're having currently?

I'll take the first piece on the elements of gross margin.

Gross margin for the year was down about 15 basis points.

Components of that were gross margin was down 60 basis points due to some of the issues we talked about -- transitional issues, mark down issues and shrink issues.

It was merchandise margin?

Yes, earlier in the '05 year.

Occupancy, however, leverage with buying costs is about 45 basis points which gave us the 15 basis points off.

On the question on DCs, we're really not facing any dramatic issues.

I think, as I said earlier, we're on track with achieving the results that we've anticipated with engineered standards.

Anytime you're dealing with individuals it's about really making sure that they have a good understanding of the project and a good understanding of what's expected and we'll continue to address those challenges as we look forward.

Have you seen big turnover in the DCs?

Our turnover is right in line with what we've seen historically and what we plan on.

It's right in line with expectations.

Okay.

Thanks, guys.

Good luck.

Richard Jaffe, Stifel Nicolaus.

A question on dd’s DISCOUNTS and I guess you've mentioned improving economics.

If you could comment on the price points and your differentiation Ross to dd and what you see will be the key opportunities to improve the economics there?

The biggest issue is probably about a 15% -- 12 to 15% differential in average price between the two companies and it creates the obvious problems in moving more units, selling more units, processing more units throughout the whole network.

So there are cost issues there that we're working through and trying to come up with actually better ways to run the business than we have.

The second part of the question was --?

Well, I guess -- should I assume Ross' price point is about 12 and dd's is about 10, is that a good ballpark?

No, actually, Richard, the Ross average selling price point is more around 10 and dd's would be south of that.

About 15% below that?

Yes.

I guess looking at the real estate for dd's is clustering an opportunity to keep the stores in the same market for shipping, for freight benefits, for management benefits?

Is that part of the plan?

I know you've (multiple speakers).

The plan is to keep in the same markets because we think there are opportunities in those markets.

That's our strategy.

Corporately we want to stay in existing markets.

We see no reason to expand beyond existing markets there.

And I want to qualify that average price point differential.

It's between 10 and 15.

10 and 15%?

Yes.

Great, thank you.

Michelle Clark, Morgan Stanley.

Good morning.

Given the slow down in inventory turns that we're seeing in the wholesale channel, has that been a positive impact for pricing for you?

Could you repeat that, please?

If you take a look at inventory turns within the wholesale channel, those have been slowing.

We're just wondering if that has any positive impact from the pricing that you're receiving.

Usually it would.

Usually it would.

Okay, thanks.

Margaret Mager, Goldman Sachs.

I have a couple actually.

First of all, on the same store sales for March, I think you said they're running up 1 to 2%.

Is that right so far?

No, what we said is March is up 5% to date.

Okay.

Now what is the impact of Easter on March?

Well, essentially we're going to push a lot of sales into April and we have forecasted March for the month to be up 1 to 2% and April to be up 7 to 8%.

So it's fairly significant.

Okay, so it's like a 3 point swing approximately?

Yes, I'd say a couple of points, right.

All right.

Can I just ask about a reminder on the shrink issue.

Was that pilferage in your store from employees, customers or was there a booked physical inventory reconciliation issue?

I think we had a little bit of both.

We believe that a portion of the shrink was related to our systems and distribution channels that we experienced in the past.

We understand that and we believe that's completely behind us now.

And then we also quantify how much of it really was in-store related shrink both internal and external and clearly are targeting both of those issues.

Did you ever talk about what kind of percentage shrink was running at?

We haven't talked about exactly where shrink was running.

Historically we've been below a retail average of 2.

We know shrink for the year, for '05 cost us about 35 basis points.

On the system changes that you want to make to address localization of merchandising in your Southeast stores, can you give any more color on that?

Especially in light of a lot of the challenges you've had with your systems vis-à-vis merchandising more broadly across Ross, what would make you guys feel comfortable that you won't have further issues as you change something in your system related to that localization?

Can you talk about how you're going to do this and any more detail and also help us understand why it won't result in another glitch?

This is Michael O’Sullivan, Margaret.

I think I'd answer that in two ways.

The first is the objective of what we want to do is make sure that the merchandise assortment in each store is more tailored to that particular store's needs and trends.

That's the objective.

We are frankly looking through the different ways of doing that and obviously looking at a balance of making that as effective as possible without incurring incremental risk.

And part of the way we're going to manage that risk is to be very cautious about how we pilot any changes that we make.

That's something different in the approach than what was done in the previous two years as you rolled out your new -- you changed your approach?

I think it's fair to say we're going to be more cautious and we're going to pilot more than perhaps we have in the past.

And then lastly if you could please -- the EBIT margin outlook.

Is it possible at some point to get back to the 9.5% level and what are the one or two things that would have to happen to achieve that?

And what kind of timeframe do you think is realistic to maybe start to approach that kind of level of EBIT margin?

Over the next several years -- we haven't [banned] it from a timeframe standpoint, that the model -- the Ross Store's model can deliver that sort of getting back to more historical norms as we continue to focus on three principal areas of the business -- new store productivity in some of our newer markets, we've got to get that back to pace.

We continue to focus on the DCs from a productivity standpoint.

And we continue to focus on our shrink initiatives and that's what the enterprise was focused on.

We think once we're successful around those three dimensions that there's no reason in our view why more historical levels couldn't be achieved.

So in your view there's nothing that's changed on the competitive landscape or anything external to Ross that would imply that the Company level of profitability is more appropriate at a slightly lower level than achieved in the past?

We're not seeing anything from a competitive market as we look at it in our markets where we have historically been.

They're performing well.

We think it's going to be gradual and we think it's going to be over a period of time.

Okay, roughly timeframes?

Haven't spelled out a timeframe.

We're focused on fixing our issues in the Company and staying on the course that John outlined and that is more important to us than establishing a short-term benchmark.

We're extremely focused on a short list of priorities correct for this Company.

Okay, thank you all.

Marni Shapiro, Merrill Lynch.

Congratulations on a great quarter.

Could you talk a little bit -- I'm looking at merchandise trends -- a little bit of what's happening at Ross?

I was curious if the shoes and juniors remained (technical difficulty) for the spring season?

And then the difference between trends that you're seeing at dd's versus Ross Stores.

And then finally, one last thing.

As you are looking into these new markets, you've talked about how the stores were merchandised regionally versus urban, suburban?

More specifically have you started peeling back the layers there?

Any insight you can give us.

Okay.

The early spring start off is really consistent with where we were last year, juniors and shoes continue to lead the pack, the home business has come out of the box very strong.

Those would be -- the home getting much stronger is really the biggest difference from where we were trend wise coming into the year.

I don't think the trends are very different at dd's as it relates to juniors and shoes.

They both are very, very strong.

The young businesses though in dd's are a little stronger than they are at Ross.

Meaning the children's businesses?

Children's, yes.

Children's, I'd say young men's is stronger there too.

And the third part of your question was --?

Was as you're in these new regions you said that you were merchandising those stores by greater region versus urban, suburban and all the things like that.

As you start to delve into these areas do you feel (technical difficulty) figured out already any insight we can have?

For some reason you're breaking up as you're asking that last part of the question twice.

Sorry about that.

I was curious if you figured anything out in those regions, urban stores versus suburban stores, from the differences that you're finding, any insights we could have?

This is Michael O’Sullivan, Marni.

The only insights that we'd share at this point are it's not all of our assortment, so it's just a portion of our assortment that we think we need to customize depending upon where the store is.

And it's not just urban versus rural.

It's a whole mix of other things in terms of just other demographics.

So there's a whole number of things that we're looking at and the process from here on in is to prioritize those.

Okay, great.

Thanks, guys.

Patrick McKeever, SunTrust Robinson Humphrey.

Just a question on the 53rd week adding between $0.06 and $0.07 per share to EPS in fiscal 2006, why is that so significant?

It seems significant to me anyway relative to what we're expecting elsewhere.

Typically based on -- we look at what we think that last week of sales will do and what the fall through would be.

I don't think it's out of the ordinary.

When we had a 53rd week five years ago it was kind of similar dimensions.

Okay.

Fair enough.

Back to the Southeast, in terms of adjusting the merchandise assortment why -- Michael, you said you thought that would take maybe two to three years before you got it right.

Why would it take so along?

Is that just in an effort to be very conservative and pilot various changes and so forth?

This is Michael O’Sullivan.

In an off-price business there are differences and constraints in terms of supply and matching up that supply with the trends that we see in the stores is not a trivial thing to do.

So there's some complexity around it and we're working through those complexities.

I think realistically it will be 24 months before we're in a position for actually seeing benefits from that.

And how fast are you turning inventories at the store level?

They're turning -- at historical levels.

We turn those inventories around six times.

And then just one last question on the buying side of things.

With your key competitor out talking about exercising or refocusing on core off-price disciplines and buying closer to need and so forth, have you seen any change in the buying landscape as it relates to the competition to buy the better merchandise that's out there?

Not really.

We've always met up with TJX and our suppliers.

We still meet up with them and nothing that's materially -- we see materially different.

Okay, great.

Thank you.

(OPERATOR INSTRUCTIONS).

Ben Strom, Variant Research.

Just in addition to the planning at the local level here and I guess you just said about 24 months until you see the benefits from that, are there any other initiatives you have to improving the new stores, local marketing events or increasing local advertising, etc.?

No, when we've gone through this before and we've looked at troubled regions, our conclusion has always been it's merchandised and we feel our marketing levels are appropriate and really are not the key driver as we see it in our price.

We're comfortable at our marketing levels, we're not comfortable with what we're putting in these stores.

And the customers tell us that, and it's apparent to us in the data we look at.

In our price our opinion is that if you put the right merchandise in the store you'll succeed.

It's not a marketing driven business.

So there are areas of the assortment also -- you said just portions that when you look at urban versus suburban -- and can you elaborate on that at all, where the starting point is then?

Is it on the women's side or men's?

It really runs across the board and it's not as simple as urban versus suburban.

It really is if you think about -- we have a region, and I'll use the Southeast, that's defined as the Southeast and you think of Biloxi, Mississippi and you think of an urban section or a downtown area in the Atlanta market, there are different wants and needs of those customers.

And we're assorting them not differently enough right now.

They need to be much more localized.

Both customers are very good customers and they want different types of clothing and we have none.

Our current processes and systems don't make that an easy thing for us to do and it's very important in anything we take on in regard to localized merchandising that we're not disrupting our whole business flow.

So it's taking on more than just buying differently for one region, it's really taking on changing some processes in the Company and that takes time and that we want to do with a lot of care and not try and ramrod something in an have it blow up.

Great.

Just the last thing on the real estate.

Can you elaborate at all on where the new stores, the 55 Ross Stores, what regions you're -- is there any region you're predominantly playing the 55 stores?

It will be pretty much reflective of last year on a percentage term basis.

Okay.

And in '07 -- did you say anything about '07, the growth rate there?

No, we haven't.

We haven't talked about '07.

Okay, thank you.

David Mann, Johnson Rice.

Thank you.

In terms of the growth potential you have in existing markets, can you give us a sense on what that is relative to the number of stores you have now?

We think we have significant potential to grow in the markets where we are today which is why that's where we're focused today over the next couple of years with our real estate strategy.

And the growth you're talking about like in the 55 stores, will some of those go into the markets where you're seeing some underperforming stores?

Yes, we'll continue to infill those markets.

We think that achieving scale is important for us to achieve our goals.

In terms of that, can you comment generally about the traffic trend in those relatively underperforming markets versus the other markets?

Is there an issue of name recognition or need for more advertising?

In the information we've looked at we don't see that we have a name recognition problem in total.

What we do see clearly is what we have is an assortment issue.

And so, as you know, our opinion and our information is not that we have trouble getting people into our store where they don't know who we are.

Okay.

Back in the late '90s when you had issues in the mid-Atlantic you sort of talked about the relative sales productivity issues versus that underperforming market and the rest of the chain.

Can you just give us an idea on in the Southeast how much underperforming it is relative to the around $300 a square foot the chain was feeling?

Yes, I think so.

Let's a an average store, call it 100%, the Southeast is somewhere in the mid 70s, around that.

So when we had the issue in the mid-Atlantic I think it was a similar level.

I'm sorry, I didn't catch that, John.

In the mid-Atlantic -- you're referring to back in the late '90s I believe.

Right.

So in the mid-Atlantic, I think those stores at that point in time were in the 80'ish is my recollection.

80% of the average sales productivity.

Yes.

Okay.

So they're running probably less than 250 a foot?

Yes.

Okay.

Thank you very much.

Dana Telsey, Telsey Advisory.

Can you talk a little bit about category regionalization?

Given that you mentioned that the stores need to have more specificity in some of the regions, what are you doing on the buyers' front for that?

Given that you've always added some new buyers each year how is that going to look this year and in what categories?

And lastly, on the CapEx front, anything changing in terms of with the new stores that you're opening, how much it cost to open the size or the look of the stores that you're finding given some of the consumer studies that you're doing?

Thank you.

On the first part of the question, we're not planning any extraordinary growth in buyers this year.

We don't need that.

We are still working through a lot of our issues here.

A lot of what we're working on will be more in allocation and planning.

Certainly there will be some new buyers along the way, but nothing extraordinary this year at all.

Dana, can you repeat the second part of your question?

On the CapEx, in terms of the new stores, anything changing in the size, the look, the cost to open the new stores that you found from some of the studies that you've been doing?

I would say that there really aren't any changes.

I would anticipate that we'll use the similar model prototype that you've seen over the last few years.

And in terms of CapEx, what about any remodels of existing stores this year coming up?

As we go through our CapEx we will continue to refresh stores for restroom refurbs, some dressing room refurbs -- no remodels per se, but touchups along the way.

Similar to what we've done over the past several years.

We just want to keep [churn] on those programs.

And I would add that we -- we're not really remodeling stores per se, we are in a constant state of refreshing whether it's replacement of older outdated fixtures or if we have a new demand for increased flexibility, you'll see us with, across the chain this year and next year, continuing to refresh our stores.

Thank you.

Thank you.

That does conclude today's question-and-answer session.

I would like to hand the floor back over to Michael Balmuth.

Thank you all and have a good day.

Thank you.

This does conclude today's teleconference.

You may now disconnect your lines and have a wonderful day.